Skechers Bullish on Back Half

Analysts cheered Skechers USA Inc.’s better-than-expected first-quarter results last week, but recommended a wait-and-see approach to the stock.

Susquehanna Financial analyst Christopher Svezia said the Manhattan Beach, Calif.-based firm “is headed in the right direction, [but] many challenges exist on the long road back to normalized profitability. The company still needs to prove it can sustain sequential improvements in what has been a slow road to profitability.”

Sam Poser, analyst at Sterne Agee, said Skechers’ clean inventory levels were most impressive, especially after previous quarters of aggressively clearing toning product at the expense of margins. “We hope that management will begin to view scarcity as a valuable part of their strategy,” he said.

Analysts noted the second quarter won’t be smooth sailing, but that top-line trends should improve in the third quarter, when growth will turn positive again.

“Expect a swift wholesale recovery [although the] magnitude is uncertain,” said Scott Krasik, analyst at BB&T Capital Markets. “Backlogs are still negative.”

Skechers called out several bright spots in its international business. COO and CFO David Weinberg said the Asia-Pacific regions continue to perform well, led by South Korea, which is now one of its largest distributors, as well as Australia, New Zealand, Indonesia, Hong Kong, Russia and the Middle East.

The firm also is bullish about the GoRun and GoWalk lines, attributing some of the first-quarter results to strong initial sales of those products.

“The sell-throughs have been strong, and we are now filling additional orders,” Weinberg said. “One million pairs shipped out the door [for the full year] would be on the high side, but it’s certainly possible.”

Weinberg also said, “We can still do a lot of work. I’d like to believe we can be profitable at $1.5 billion and north. We’ll do better than that certainly as we get into 2013. Our goal for the balance of 2012 is to return to profitability by delivering fresh products and supporting it with marketing that will drive sales and awareness, and to expand in key business channels while managing our expenses.”

For the first quarter ended March 31, Skechers lost 7 cents a share. Revenue declined 26.2 percent to $351.3 million. Net loss was $3.7 million, compared with a net income of $11.8 million a year ago.

Cash stood at $391.6 million, compared to $351.1 million a year ago, and long-term debt was $73.9 million.

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